Savola profits down 15%, more falls to come

By Eliot Beer

- Last updated on GMT

Savola profits down 15%, more falls to come

Related tags: Generally accepted accounting principles, Savola

The Savola Group saw profits fall 15% in its second quarter, and warns full-year profits could be down 10%, because of oversupply of commodities and a larger retail sector.

The company took in a net profit of US$121.7m in the second three months of the year, down from US$149.7m a year ago. Despite an increase in gross profit of almost 10% to US$365.9m, a 22% increase in costs, to US$275.8m, and a fall in income from associate businesses hit Savola’s bottom line.  

Missed predictions

Although the company hit its own profit forecast for the quarter, analysts were disappointed, with a group surveyed by Reuters predicting a net income of more than US$130m.

The decrease in the Group net income for [the second quarter 2015] compared to the same quarter last year is attributed mainly due to the capital gain recognised during Q2 last year due to disposal of Kazakhstan operations, dividend received from one of the associate during Q2 last year, lower share of profit from an associate during this quarter and disposal of Savola Packaging Systems Co. (SPS) earlier this year as well as the increase in zakat and foreign income tax for this quarter, despite reduced financial charges and minority share in income​,” said Savola in a statement to the Saudi stock exchange.

Gross profit increased for this quarter compared to same quarter of last year due to the growth in revenues, operating income was lower due to increased operating expenses because of growth in retail sector compared to same quarter last year​,” it added.

Gloomy outlook

Based on its forecasts, the current quarter may be even  more challenging for Savola, as the company predicts it may see a more than 50% fall in its income from the US$196m it made in Q3 last year. The group also said its full-year profits would be down.

[Savola Group managing director and CEO Abdullah M. Noor Rehaimi] indicated that Savola expects to achieve a net income (before capital gains) of [US$94.7m] for the third quarter of 2015, God willing. He also stated, given the current overseas market/economic conditions in the countries it operates and continuing oversupply of commodities, large expansion in retail sector, which has put pressure on the margins, Savola expects that its full year guidance may be affected negatively by approximately 10%​,” the company’s stock exchange statement said. 

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